Chapter 10 of 13

The verdict

Iceland's persistent inflation is not a currency problem, not a global-supply problem, not a wage-push problem, not a government-overspending problem, and not the expectations-anchor problem the central bank has been writing working papers on. It is a housing-demand shock from rapid population growth colliding with a supply machinery that, at every layer that matters, built the wrong thing on a defunded public-sector foundation — and every institution that could have steered what got built decided not to. The crisis is entirely domestic, and it is structural.

Structural factors compound it: CPI indexation that mechanically turns housing scarcity into household debt, a fiscal apparatus that mobilised pandemic stimulus at scale while shrinking its housing line in real terms, and an automatic rate-hike response whose logic and consequences are both questionable.